Debt Auction
Often traders unfamiliar with Shorter’s liquidation process worry that their net interests are highly influenced by volatility in the market, holding short positions via Shorter, however, is a practical methodology confronting the real ramifications brought by spiking prices.
The brand-new, 100% decentralized liquidating version of the Shorter Finance has introduced a full-fledged auctions system when it was launched on Sept 10, last year. The most outstanding part is the liquidation mechanism, a DeFi thing doesn’t exist yet.
Once the open position enters the Closing stage, the AuctionHall will build a linkage between it and an upcoming auction "room" opening up for eligible bidders.
While comprehensive Shorter’s debt coverage process is ideal, even basic support can be a huge benefit to associating roles.
There are three phases of auctions in Shorter: Tanto (margin bidding), Katana (cover via a DEX), and Naginata (instantly exchange for the debt at a profitable market rate). Below, we outline these exact phases the users can hop in.
Tanto - Phase 1
In this phase, rulers involved all bid so rapidly and take as higher as a possible portion of the debt. It’s quite possible that a ruler willing to take more debt can offer more robustness and stability to Shorter’s trading engine. If a participant doesn’t have enough token to cover the full amount, they can bid less surely, won’t be rigorously excluded from having odds of grabbing a part.
The current maximum duration of a Tanto is 5 minutes and whoever has utmost ability to clear the debt once the time runs out wins the portion of margin, with the debt token deposited in this phase. The corresponding amount of margin will be paid to participants after.
It’s a phase-fueling speculator to carry out fairly sophisticated strategies. A little trick with Tanto is that intellectual rulers choose to engage this phase possibly late, in charge of a perspective on investigating all bid information, and then put on a bid under enough concern.
Katana - Phase 2
Unfortunately, not all of the debt is adopted in Tanto, the next phase - Katana is kicked off as a result of the remanent debt along with unsettled cash.
Being able to take the liquidating reward habitually requires a swift reaction, basically pivoting on the sequence you submit the request via wallet. The principal is apprehensive easily and straightforward.
The calculating formula for reward is rough:
Ideally, if the position under auction size is huge, unquestionably the thrilling reward for someone who sends the cover order to Dex is grand. The only lucky one passing the line first occupies the proportional prize.
Naginata - Phase 3
Inside the mechanism description mentioned in this section, the previous perception of force selling, or even margin call would be rectified irrefutably.
Let’s take an example:
If you suppose that $COMP (Compound) might be insane during the recent quarter, and was definitely about to dump in several days. You later picked up a $COMP pool in your favor and shorted 1000 $COMP at $100 using 2× leverage ratio.
In the coming days, this decision before proven to be problematic. The price of $COMP skyrocketed to $150 without any hesitation, thus there was not enough margin deposited initially for maintaining this position.
Prior to the prescripted liquidating rulers, $135 is the liquidating point. Consequently, this position was directly managed by protocol marking as Legacy and sent to the AuctionHall. In other words, little possibility of doing something to fix the position back, such as tailoring the position size.
Note: These above 2 actions were taken by smart contracts programmatically and automatically.
Undergoing this situation, the peak $COMP price AuctionHall can offer the rulers willing to participate in bidding is nearly $135 because the unsettled cash in this cash is limited. Selling $COMP to AuctionHall or to major markets at $150, not a decision so tough to make.
Keeping the Legacy state for several days, $COMP price has been carrying out a year-long dump and hit $90 finally.
In the scope of derivative trading, shorting might be a risky way in traditional venues, and could potentially lead to your holding position crashing without leaving you one cent.
However, Shorter Finance provides an exceptional case that you will find fascinating in actuality. While it would be possible for the position liquidated with little involvement of off-chain service to maintain precision, it’s not easy.
Currently, AuctionHall is evolving to offer the rulers a profitable price(including 2% liquidating rewards), $91.8. The cohort of rulers hop in the ongoing legacy auction for arbitrage, exchange their per $COMP for $91.8 USD(s), and buy them back at $90 in major markets. Needless to say, they sweep the debt out and get the trading engine to conduct closure to the position. Going forward, the trader irregularly gets an approximate profit of $820 ( ($100 - $91.8) × 100 ) though his position happened to "suffer" a liquidation a few days ago.
There is no conventional "overdrawn" concept in Shorter’s design, liquidating is just calculating and clearing the debt.
Explore the Liquidations (opens new window) page to find more ruler specific description covering all the aspects of Shorter’s auction.